# Module 32. Game Theory. Module Objectives. Module Outline. I. Games Oligopolists Play

Size: px
Start display at page:

Download "Module 32. Game Theory. Module Objectives. Module Outline. I. Games Oligopolists Play"

Transcription

1 Module 32 Game Theory Module Objectives Students will learn in this module: How our understanding of oligopoly can be enhanced by using game theory. The concept of the prisoners dilemma. How repeated interactions among oligopolists can result in collusion in the absence of any formal agreement. Module Outline I. Games Oligopolists Play A. Definition: The study of behavior in situations of interdependence is known as game theory. B. The prisoners dilemma 1. Definition: The reward received by a player in a game, such as the profits earned by an oligopolist, is that player s payoff. 2. Definition: A payoff matrix shows how the payoff to each of the participants in a two-player game depends on the actions of both. This is illustrated in text Figure 32-1, shown on the next page. 176

2 module 32 game theory 177 A Payoff Matrix Ajinomoto Produce 30 million pounds Produce 40 million pounds Produce 30 million pounds \$180 million \$180 million \$200 million \$150 million ADM Produce 40 million pounds \$200 million \$150 million \$160 million \$160 million a. In a prisoners dilemma game, each player has an incentive, regardless of what the other player does, to cheat, to take an action that benefits it at the other s expense. b. When both players in the prisoners dilemma cheat, both are worse off than they would have been if neither had cheated. c. Definition: An action is a dominant strategy when it is a player s best action regardless of the action taken by the other player. d. Definition: A Nash equilibrium, also known as a noncooperative equilibrium, is the result when each player in a game chooses the action that maximizes his or her payoff given the actions of the other players, ignoring the effects of that action on the payoffs received by those other players. C. Overcoming the prisoners dilemma: Repeated interaction and tacit collusion 1. Oligopolists in the real world play repeated games. 2. Definition: A firm engages in strategic behavior when it attempts to influence the future behavior of other firms. 3. Definition: A strategy of tit for tat involves playing cooperatively at first, then doing whatever the other player did in the previous period. Doing this, a firm can punish another firm for cheating. 4. Definition: When firms limit production and raise prices in a way that raises each others profits, even though they have not made any formal agreement, they are engaged in tacit collusion. 5. When oligopolists expect to compete with each other over an extended period, each individual firm will often find it in its own best interests to help other firms in the industry, and so there will be tacit collusion.

4 module 32 game theory 179 Sky World High Low High Bay City Low Students should be able to grasp the concept of a dominant strategy from the matrix provided. They should also be able to understand why a firm would have an incentive to break an agreement to collude, based on the example from the previous section. These are all one-period examples. Now that students have mastered one-period games, introduce the concept of a repeated game. Discuss tit for tat and explain that tacit collusion is a likely outcome. Case Studies in the Text Economics in Action Prisoners of the Arms Race This EIA looks at the arms race between World War II and the late 1980s as an example of the application of game theory. Activities Tit for Tat? (30 45 minutes) Organize students into teams of three, with each team representing a specific oligopoly industry. Each student represents a specific company within the oligopoly. Make this clear by standing by one team and indicating that one student may play the role of Kellogg s, the second Quaker Oats, and the third student General Mills. The goal of each company is to maximize profits for their corporation. Explain that during this experiment, each firm must decide whether to choose a high price for their product (H = \$8) or a low price (L = \$6). (In this game, oligopolists are competing on price alone, not on quantities.) If a student is operating as the price leader, she will signal a high price by thumbs up and a low price by thumbs down. Before the experiment begins, distribute the following chart for students to fill out.

5 180 module 32 game theory Prices Total cost (possible Total sales Total (\$110 fixed outcomes of in the Firm s sales revenue and each round) market Price (quantity) (P x Q) \$2 variable) Profit HHH 60,60, H = \$8 HHL 20,20, H = \$8 L = \$6 HLL 10,100, H = \$8 L = \$6 LLL 216 L = \$6 72,72,72 During the game, students track their pricing and profits with the form below: Profit or Loss Statement form (extend this form to show 15 rounds): Industry situation Your firm s price Round (HHH,HHL,HLL,LLL) (H or L) Profit Loss Tell students that any verbal discussion on pricing strategy during the game will be punished under antitrust laws: a team can be thrown out into the hall. Optional: Remind students that the most profitable strategy for the industry as a whole is to collude. To start the experiment, ask each team to choose a price leader for the first round; the student taking this role changes each round. Ask the price leader to choose a high or low price and signal to the team his or her choice. Then have the two other students choose their prices and secretly record them on the firm s profit sheet, covering their prices with their hands. Now it is time for them to reveal their pricing decisions to the industry. The oligopoly determines the outcome: HHH, HHL, HLL, LLL, etc. Then each firm records its individual profit or loss for this first round. Teams continue this process until they have played all 15 rounds: The new price leader shows the choice of his or her firm s price, and the two other firms secretly respond. The two firms show their choice, the oligopoly determines the outcome, and individual firms record their profit or loss for that round. Observe the teams during the game to see if any are able to achieve tacit collusion and agree on a high price. Because leading with a high price risks rivals undercutting the price, the least risky strategy is to lead with a low price. Students tend to use a tit for tat strategy in this game.

6 module 32 game theory 181 To Collude or Not? (5 10 minutes) Use the payoff matrix shown previously for the two airlines to play the following game. Pair students and tell them that each student in a pair represents an airline in a duopoly. On the count of three, each student chooses a high or a low price by signaling thumbs up or thumbs down. Students then record their profits based on the payoff matrix. Round Your price Your payoff Profit Debrief the game by pointing out that the dominant strategy in this game is to choose a low price. Oligopoly (10 minutes) The Classroom Expernomics website has a variety of classroom experiments that can be used to teach about oligopoly. Go to html and type in oligopoly, collusion or cartel to find interesting activities.

### Oligopoly. Fun and games. An oligopolist is one of a small number of producers in an industry. The industry is an oligopoly.

Oligopoly Fun and games Oligopoly An oligopolist is one of a small number of producers in an industry. The industry is an oligopoly. All oligopolists produce a standardized product. (If producers in an

### Chapter 15 Oligopoly

Goldwasser AP Microeconomics Chapter 15 Oligopoly BEFORE YOU READ THE CHAPTER Summary This chapter explores oligopoly, a market structure characterized by a few firms producing a product that mayor may

### ECONS 101 PRINCIPLES OF MICROECONOMICS QUIZ #6 Week 04/19/09 to 04/25/09

CHAPTER 14 Monopoly ECONS 101 PRINCIPLES OF MICROECONOMICS QUIZ #6 Week 04/19/09 to 04/25/09 1. Joe s price elasticity of demand for airplane travel is equal to 2, and Beth s price elasticity of demand

### AP Microeconomics: Test 5 Study Guide

AP Microeconomics: Test 5 Study Guide Mr. Warkentin nwarkentin@wyomingseminary.org 203 Sprague Hall 2017-2018 Academic Year Directions: The purpose of this sheet is to quickly capture the topics and skills

### Noncooperative Collusion

Noncooperative Collusion The Cournot Oligopoly model was a single-period noncooperative model. In most models of imperfect competition, it is true that if firms independently try to maximize their short-term

### OLIGOPOLY AND DUOPOLY. Asst.. Prof. Dr. Serdar AYAN

OLIGOPOLY AND DUOPOLY Asst.. Prof. Dr. Serdar AYAN WHAT IS OLIGOPOLY? Oligopoly is a market type in which: A small number of firms compete. Natural or legal barriers prevent the entry of new firms.. WHAT

### Paul Krugman and Robin Wells. Microeconomics. Third Edition. Chapter 14 Oligopoly. Copyright 2013 by Worth Publishers

Paul Krugman and Robin Wells Microeconomics Third Edition Chapter 14 Oligopoly Copyright 2013 by Worth Publishers What s an oligopoly? (oligos = few, polis = marketplace) A. Key characteristics: Only a

### Basic Economics Chapter 17

1 Basic Economics Chapter 17 Oligopoly Oligopoly: (1) only a few sellers (2) offer similar or identical products (3) interdependent Game theory (how people behave in strategic situations): (1) choose among

### FOUR MARKET MODELS. Characteristics of Oligopolies:

FOUR MARKET MODELS Perfect Competition Monopolistic Competition Oligopoly Pure Monopoly Characteristics of Oligopolies: A Few Large Producers (Less than 10) Identical or Differentiated Products High Barriers

### Unit 13 AP Economics - Practice

DO NOT WRITE ON THIS TEST! Unit 13 AP Economics - Practice Multiple Choice Identify the choice that best completes the statement or answers the question. 1. A natural monopoly exists whenever a single

### Oligopoly. Quantity Price(per year) 0 \$120 2,000 \$100 4,000 \$80 6,000 \$60 8,000 \$40 10,000 \$20 12,000 \$0

Oligopoly 1. Markets with only a few sellers, each offering a product similar or identical to the others, are typically referred to as a. monopoly markets. b. perfectly competitive markets. c. monopolistically

### MICROECONOMICS - CLUTCH CH OLIGOPOLY.

!! www.clutchprep.com CONCEPT: CHARACTERISTICS OF OLIGOPOLY A market is an oligopoly when: Nature of Good: The goods for sale are Setting Price: The sellers are - There are producers - Firms are One firm

### Chapter 12. Oligopoly and Strategic Behavior. Microeconomics: Principles, Applications, and Tools NINTH EDITION

Microeconomics: Principles, Applications, and Tools NINTH EDITION Chapter 12 Oligopoly and Strategic Behavior In an oligopoly, defined as a market with just a few firms, each firm has an incentive to act

### Principles of Microeconomics Assignment 8 (Chapter 10) Answer Sheet. Class Day/Time

1 Principles of Microeconomics Assignment 8 (Chapter 10) Answer Sheet Name Class Day/Time Questions of this homework are in the next few pages. Please find the answer of the questions and fill in the blanks

### Chapter 6. Game Theory One

6.1 Game Theory Introduction Game theory was introduced to better understand oligopoly. Recall the definition of game theory. Game Theory = A framework to study strategic interactions between players,

### Oligopoly 12/11/2017. Measuring Market Concentration. Oligopoly. Look for the answers to these questions: Concentration ratio

N. GREGORY MANKIW PRINCIPLES OF ECONOMICS Eight Edition CHAPTER 17 Oligopoly Look for the answers to these questions: What outcomes are possible under oligopoly? Why is it difficult for oligopoly firms

### Game Theory and Economics

and Economics Game theory is the study of how people behave in strategic situations. Strategic decisions are those in which each person, in deciding what actions to take, must consider how others might

### Oligopoly C H A P T E R C H E C K L I S T. When you have completed your study of this chapter, you will be able to

Oligopoly CHAPTER17 C H A P T E R C H E C K L I S T When you have completed your study of this chapter, you will be able to 1 Describe and identify oligopoly and explain how it arises. 2 Explain the dilemma

### Oligopoly. Economics. Measuring Market Concentration. Oligopoly. In this chapter, look for the answers to these questions CHAPTER 17

Seventh Edition rinciples of Economics N. Gregory Mankiw Wojciech Gerson (1831-1901) In this chapter, look for the answers to these questions What outcomes are possible under oligopoly? Why is it difficult

### Chapter 12. Oligopoly. Oligopoly Characteristics. ) of firms Product differentiation may or may not exist ) to entry. Chapter 12 2

Chapter Oligopoly Oligopoly Characteristics ( ) of firms Product differentiation may or may not exist ( ) to entry Chapter Oligopoly Equilibrium ( ) Equilibrium Firms are doing the best they can and have

### 29/02/2016. Market structure II- Other types of imperfect competition. What Is Monopolistic Competition? OTHER TYPES OF IMPERFECT COMPETITION

Market structure II- Other types of imperfect competition OTHER TYPES OF IMPERFECT COMPETITION Characteristics of Monopolistic Competition Monopolistic competition is a market structure in which many firms

### Microeconomics Sixth Edition

N. Gregory Mankiw Principles of Microeconomics Sixth Edition 17 Oligopoly Premium PowerPoint Slides by Ron Cronovich In this chapter, look for the answers to these questions: What outcomes are possible

### 2013 sample MC CH 15. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question.

Class: Date: 2013 sample MC CH 15 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Monopolistic competition is identified by a. many firms producing a slightly

### 2007 Thomson South-Western

BETWEEN MONOPOLY AND PERFECT COMPETITION Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly. Imperfect competition includes industries in which

### Oligopoly and Monopolistic Competition

Oligopoly and Monopolistic Competition Introduction Managerial Problem Airbus and Boeing are the only two manufacturers of large commercial aircrafts. If only one receives a government subsidy, how can

### Chapter 12. A Game Theoretic Approach to Strategic Behavior

Chapter 12 A Game Theoretic Approach to Strategic Behavior Chapter Outline An Introduction to the Theory of Games Prisoner s Dilemma Nash Equilibrium Maximin Strategy Strategies for Repeated Play Sequential

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Practice set Chapter 14 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A market comprised of only two firms is called a 1) A) monopolistically

### AP Microeconomics. Content Skills Learning Targets Assessment Resources & Technology

St. Michael Albertville High School Teacher: Matthew Rooker AP Microeconomics October 2014 Content Skills Learning Targets Assessment Resources & Technology November 2014 Content Skills Learning Targets

### 15 OLIGOPOLY. Chapter. Key Concepts. Prisoners Dilemma Payoff Matrix. A s strategies. Deny. Confess. 4 years. 12 years. Confess.

Chapter 15 OLIGOPOLY Key Concepts Prisoners Dilemma Payoff Matrix What Is Oligopoly? Oligopoly is a market structure in which natural or legal barriers prevent the entry of new firms and in which a small

### Imperfect Competition. Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly.

Oligopoly Imperfect Competition Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly. Imperfect Competition Imperfect competition includes industries

### Experiential Learning Through Classroom Experiments David Bowes, Southeastern Louisiana University Jay Johnson, Southeastern Louisiana University

Experiential Learning Through Classroom Experiments David Bowes, Southeastern Louisiana University Jay Johnson, Southeastern Louisiana University ABSTRACT This paper describes classroom experiments in

### UNIVERSITY OF CAPE COAST CAPE COAST - GHANA BASIC OLIGOPOLY MODELS

UNIVERSITY OF CAPE COAST CAPE COAST - GHANA BASIC OLIGOPOLY MODELS Overview I. Conditions for Oligopoly? II. Role of Strategic Interdependence III. Profit Maximization in Four Oligopoly Settings Sweezy

### Oligopoly and Monopolistic Competition

Oligopoly and Monopolistic Competition Introduction Managerial Problem Airbus and Boeing are the only two manufacturers of large commercial aircrafts. If only one receives a government subsidy, how can

### Chapter 15: Industrial Organization

Chapter 15: Industrial Organization Imperfect Competition Product Differentiation Advertising Monopolistic Competition Oligopoly Collusion Cournot Model Stackelberg Model Bertrand Model Cartel Legal Provisions

### Oligopoly Market. PC War Games

Oligopoly Market PC War Games In some markets there are only two firms. Computer chips are an example. The chips that drive most PCs are made by Intel and Advanced Micro Devices. How does competition between

### Oligopoly is a market structure in which Natural or legal barriers prevent the entry of new firms. A small number of firms compete.

15 OLIGOPOLY What Is Oligopoly? Oligopoly is a market structure in which Natural or legal barriers prevent the entry of new firms. A small number of firms compete. Oligopoly sell (but more than two) of

### ECO 610: Lecture 9. Oligopoly, Rivalry, and Strategic Behavior

ECO 610: Lecture 9 Oligopoly, Rivalry, and Strategic Behavior Oligopoly, Rivalry, and Strategic Behavior: Outline Porter s Five Forces Model: when does internal rivalry get interesting? Oligopoly: definition

### Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry s output.

Topic 8 Chapter 13 Oligopoly and Monopolistic Competition Econ 203 Topic 8 page 1 Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry

### AQA Economics A-level

AQA Economics A-level Microeconomics Topic 5: Perfect Competition, Imperfectly Competitive Markets and Monopoly 5.5 Oligopoly Notes Characteristics of an oligopoly: High barriers to entry and exit There

### How do we know the market structure?

Course informa-on Final exam: Tuesday, 12/11 4-6 in Machmer W 15 If you have a conflict, go the the Registrar s office and they will give you a form saying which exam can be changed. Final exam will cover

CH 15-16 short answer study questions Answer Section ESSAY 1. ANS: There are a large number firms; each produces a slightly different product; firms compete on price, quality and marketing; and firms are

### Oligopoly Market. PC War Games

Oligopoly Market Ref. Ch 17 PC War Games In some markets there are only two firms. Computer chips are an example. The chips that drive most PCs are made by Intel and Advanced Micro Devices. How does competition

### Oligopoly Pricing. EC 202 Lecture IV. Francesco Nava. January London School of Economics. Nava (LSE) EC 202 Lecture IV Jan / 13

Oligopoly Pricing EC 202 Lecture IV Francesco Nava London School of Economics January 2011 Nava (LSE) EC 202 Lecture IV Jan 2011 1 / 13 Summary The models of competition presented in MT explored the consequences

### Static (or Simultaneous- Move) Games of Complete Information

Static (or Simultaneous- Move) Games of Complete Information Dominated Strategies Nash Equilibrium F.Valognes - Game Theory - Chp 2 1 Outline of Static Games of Complete Information Introduction to games

### Sample Multiple-Choice Questions

E03 3 Microeconomics Summative Exam SAMPLE QUESTIONS Sample Multiple-Choice Questions Circle the letter of each correct answer 1 True statements about the theory of the firm in the short run and long run

### 6) In the above figure of a monopolistically competitive firm, the area of economic profit is A) ADB. B) ABC. C) P 2 FEP 5. D) P 2 AD P 4.

1 1) The maximum total economic profit that can be made by colluding duopolists A) equals the economic profit made by a monopolist. B) exceeds the economic profit made by a monopolist. C) is less than

### Microeconomics LESSON 6 ACTIVITY 41

Microeconomics LESSON 6 ACTIVITY 41 Game Theory Strategic thinking is the art of outdoing an adversary, knowing that the adversary is trying to do the same to you. Dixit and Nalebuff Game theory is used

### Economics II - October 27, 2009 Based on H.R.Varian - Intermediate Microeconomics. A Modern Approach

Economics II - October 7, 009 Based on H.R.Varian - Intermediate Microeconomics. A Modern Approach GAME THEORY Economic agents can interact strategically in a variety of ways, and many of these have been

### Introduction. Learning Objectives. Learning Objectives. Chapter 27. Oligopoly and Strategic Behavior

Chapter 27 Oligopoly and Introduction On a typical day, United Parcel Service will transport over 10 million packages. UPS and its main rival, FedEx Ground, earn more than three-fourths of total revenue

### Oligopolies Part III

Oligopolies Part III It's called an oligopoly. It's not a regular market. It's a market in which they control the prices and they've been doing it for years. Richard Miller The Prisoner s Dilemma Consider

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Review 10-14-15 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1. The four-firm concentration ratio equals the percentage of the value of accounted

### Recall from last time. Econ 410: Micro Theory. Cournot Equilibrium. The plan for today. Comparing Cournot, Stackelberg, and Bertrand Equilibria

Slide Slide 3 Recall from last time A Nash Equilibrium occurs when: Econ 40: Micro Theory Comparing Cournot, Stackelberg, and Bertrand Equilibria Monday, December 3 rd, 007 Each firm s action is a best

### Edexcel (A) Economics A-level

Edexcel (A) Economics A-level Theme 3: Business Behaviour & the Labour Market 3.4 Market Structures 3.4.4 Oligopoly Notes Characteristics of an oligopoly: High barriers to entry and exit There are high

### Collusion with secret price cuts: an experimental investigation. Abstract

Collusion with secret price cuts: an experimental investigation Robert Feinberg American University Christopher Snyder George Washington University Abstract Theoretical work starting with Stigler (1964)

### Chapter 9: Static Games and Cournot Competition

Chapter 9: Static Games and Cournot Competition Learning Objectives: Students should learn to:. The student will understand the ideas of strategic interdependence and reasoning strategically and be able

### Syllabus item: 57 Weight: 3

1.5 Theory of the firm and its market structures - Monopoly Syllabus item: 57 Weight: 3 Main idea 1 Monopoly: - Only one firm producing the product (Firm = industry) - Barriers to entry or exit exists,

### The Analysis of Competitive Markets

C H A P T E R 12 The Analysis of Competitive Markets Prepared by: Fernando & Yvonn Quijano CHAPTER 12 OUTLINE 12.1 Monopolistic Competition 12.2 Oligopoly 12.3 Price Competition 12.4 Competition versus

### 11. Oligopoly. Literature: Pindyck and Rubinfeld, Chapter 12 Varian, Chapter 27

11. Oligopoly Literature: Pindyck and Rubinfeld, Chapter 12 Varian, Chapter 27 04.07.2017 Prof. Dr. Kerstin Schneider Chair of Public Economics and Business Taxation Microeconomics Chapter 11 Slide 1 Chapter

### Monopolistic Competition Oligopoly Duopoly Monopoly. The further right on the scale, the greater the degree of monopoly power exercised by the firm.

Oligopoly Monopolistic Competition Oligopoly Duopoly Monopoly The further right on the scale, the greater the degree of monopoly power exercised by the firm. Imperfect competition refers to those market

### Managerial Economics & Business Strategy. Game Theory: Inside Oligopoly

Managerial Economics & Business Strategy Chapter 10 Game Theory: Inside Oligopoly Revised 2/12 by DF McGraw-Hill/Irwin Copyright Copyright 2006 by The 2006 McGraw-Hill by The McGraw-Hill Companies, Inc.

### AGEC 3333 Practice Questions for Exam 3 Fall Semester, 2009 Set A: Material From Chapter 10, Pages ,

(1) (from page 108) Match each industry description with the proper identification by drawing a line between the description and identification. a market with many buyers and sellers with roughly equal

### Chapter 12. Oligopoly. Oligopoly Characteristics. Oligopoly Equilibrium

Chapter Oligopoly Oligopoly Characteristics Small number of firms Product differentiation may or may not eist Barriers to entry Chapter Oligopoly Equilibrium Defining Equilibrium Firms are doing the best

Lecture 3 OLIGOPOLY (CONTINUED) 13-1 Copyright 2012 Pearson Education. All rights reserved. Chapter 13 Topics Stackelberg Model. Bertrand Model. Cartels. Comparison of Collusive/cartel, Cournot, Stackelberg,

### (d) increasing long-run pork supply. (e) increasing long-run pork demand

Name From Chapter 5: Agricultural Prices (1) [1 point] Changes in agricultural prices are caused by (fill in the missing factor) 1. long-run supply and demand conditions 2. seasonality 3. market shocks

### 3. Cartels and Collusion

Competition less than jointly max profit firms have incentives to avoid competition These incentives are basis for competition policy Explicit cartels, implicit tacit collusion How would these show up

### Exam #2 Time: 1h 15m Date: 10 July Instructor: Brian B. Young. Multiple Choice. 2 points each

Economics 212 Microeconomic Principles Exam #2 Time: 1h 15m Date: 10 July 2013 Name The value of this exam is 100 points. Instructor: Brian B. Young Please show your work where appropriate! Multiple Choice

### OLIGOPOLY: Characteristics

OBJECTIVES Explain how managers of firms that operate in an oligopoly market can use strategic decision making to maintain relatively high profits Understand how the reactions of market rivals influence

### Econ8500_Game_Theory. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question.

Name: Class: Date: ID: A Econ8500_Game_Theory Multiple Choice Identify the choice that best completes the statement or answers the question. 1. A common assumption about the player in a game is that a.

### Microeconomics (Oligopoly & Game, Ch 12)

Microeconomics (Oligopoly & Game, Ch 12) Lecture 17-18, (Minor 2 coverage until Lecture 18) Mar 16 & 20, 2017 CHAPTER 12 OUTLINE 12.1 Monopolistic Competition 12.2 Oligopoly 12.3 Price Competition 12.4

Games and Strategic Behavior Chapter 9 McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives 1. List the three basic elements of a game. Recognize

### OLIGOPOLY. After studying this chapter, you will be able to:

After studying this chapter, you will be able to: Define and identify oligopoly Use game theory to explain how price and output are determined in oligopoly Use game theory to explain other strategic decisions

### AP Microeconomics Review Session #3 Key Terms & Concepts

The Firm, Profit, and the Costs of Production 1. Explicit vs. implicit costs 2. Short-run vs. long-run decisions 3. Fixed inputs vs. variable inputs 4. Short-run production measures: be able to calculate/graph

### 14.1 Comparison of Market Structures

14.1 Comparison of Structures Chapter 14 Oligopoly 14-2 14.2 Cartels Cartel in Korea Oligopolistic firms have an incentive to collude, coordinate setting their prices or quantities, so as to increase their

### Principles of Microeconomics Module 5.1. Understanding Profit

Principles of Microeconomics Module 5.1 Understanding Profit 180 Production Choices of Firms All firms have one goal in mind: MAX PROFITS PROFITS = TOTAL REVENUE TOTAL COST Two ways to reach this goal:

### Lecture 13(ii) Announcements. 1. Application of Game Theory: Duopoly (The one-shot game case)

Lecture 13(ii) Announcements Check out Final Exam OneStop Page at the very bottom of Moodle One stop shopping for all your final preparation needs, including questions from previous finals. 1. Application

### Principles of Economics. January 2018

Principles of Economics January 2018 Monopoly Contents Market structures 14 Monopoly 15 Monopolistic competition 16 Oligopoly Principles of Economics January 2018 2 / 39 Monopoly Market power In a competitive

### Chapter Summary and Learning Objectives

CHAPTER 13 Oligopoly: Firms in Less Competitive Markets Chapter Summary and Learning Objectives 13.1 Oligopoly and Barriers to Entry (pages 432 435) Show how barriers to entry explain the existence of

### full file at

Chapter 10 Monopolistic Competition and Oligopoly CHAPTER SUMMARY The characteristics of the monopolistically competitive and the oligopoly are introduced and compared with the other market structures.

### Principles of. Economics. Week 7. Monopolistic competition & Oligopoly. 14 th April 2014

Principles of Economics Week 7 Monopolistic competition & Oligopoly 14 th April 2014 Monopolistic competition In this week, look for the answers to these questions:! What market structures lie between

### Do not open this exam until told to do so. Solution

Do not open this exam until told to do so. Department of Economics College of Social and Applied Human Sciences K. Annen, Fall 003 Final (Version): Intermediate Microeconomics (ECON30) Solution Final (Version

### H3 Economics: Game Theory and the Economics of Cooperation. theme 2: firms and market failure game theory notes

theme 2: firms and market failure game theory notes introduction dominant strategies, Nash equilibrium and Prisoner s Dilemma repeated games sequential games entry deterrence strategic trade limitations

### 9 The optimum of Oligopoly

Microeconomics I - Lecture #9, December 1, 2008 9 The optimum of Oligopoly During previous lectures we have investigated two important forms of market structure: pure competition, where there are typically

### Essential Questions Content Skills Assessments Standards/PIs Resources/Notes. Discriminates between scarcity and shortage.

Map: AP Economics Type: Consensus Grade Level: 12 School Year: 2010-2011 Author: Jessica Cartusciello District/Building: Island Trees/Island Trees High School Created: 06/28/2010 Last Updated: 07/22/2010

### QOD #: 29: Graphing Practice w/ Mr. Clifford

LO1 10-1 AGENDA Thurs 10/29 Regulated Monopoly (FRQ 2011 & 2012) QOD #: 29: Graphing Practice w/ Mr. Clifford Price Discriminating Monopoly Monopolistic Competition & Oligopoly CH 8/9 Results/TC & Retakes

### Lecture 11 Imperfect Competition

Lecture 11 Imperfect Competition Business 5017 Managerial Economics Kam Yu Fall 2013 Outline 1 Introduction 2 Monopolistic Competition 3 Oligopoly Modelling Reality The Stackelberg Leadership Model Collusion

### Lecture 7 Rivalry, Strategic Behavior and Game Theory

Lecture 7 Rivalry, Strategic Behavior and Game Theory 1 Overview Game Theory Simultaneous-move, nonrepeated interaction Sequential interactions Repeated strategic interactions Pricing coordination 2 Introduction

### Intermediate Microeconomics IMPERFECT COMPETITION BEN VAN KAMMEN, PHD PURDUE UNIVERSITY

Intermediate Microeconomics IMPERFECT COMPETITION BEN VAN KAMMEN, PHD PURDUE UNIVERSITY No, not the BCS Oligopoly: A market with few firms but more than one. Duopoly: A market with two firms. Cartel: Several

### Economics 335, Spring 1999 Problem Set #9

Economics 335, Spring 1999 Problem Set #9 Name: 1. Two firms share a market with demand curve Q ã 120 " 1 2 p Each has cost function CŸy ã 1300 ò y 2 a. What is the outcome in this market if these firms

### Oligopoly is a market structure in which Natural or legal barriers prevent the entry of new firms. A small number of firms compete.

CHAPTER 15: OLIGOPOLY What Is Oligopoly? Oligopoly is a market structure in which Natural or legal barriers prevent the entry of new firms. A small number of firms compete. Barriers to Entry Either natural

### ECON December 4, 2008 Exam 3

Name Portion of ID# Multiple Choice: Identify the letter of the choice that best completes the statement or answers the question. 1. A fundamental source of monopoly market power arises from a. perfectly

### Final exam and review informa0on

Final exam and review informa0on Monday, May 7th, at 4 PM in Boyden Gym Covers chapters on perfect compe00on, monopoly and monopolis0c compe00on Has 40 mul0ple choice and choice of 1 out of 2 of short

### Microeconomics LESSON 6 ACTIVITY 40

Microeconomics LESSON 6 ACTIVITY 40 Monopolistic Competition Figure 40.1 Monopolistically Competitive Firm in the Short Run MC COSTS/REVENUE (DOLLARS) E D C B A F H K G ATC D 0 MR L M QUANTITY 1. Use Figure

### Managerial Economics Prof. Trupti Mishra S.J.M School of Management Indian Institute of Technology, Bombay. Lecture - 33 Oligopoly (Contd )

Managerial Economics Prof. Trupti Mishra S.J.M School of Management Indian Institute of Technology, Bombay Lecture - 33 Oligopoly (Contd ) We will continue our discussion on theory of Oligopoly, typically

### ECONS 424 STRATEGY AND GAME THEORY MIDTERM EXAM #2

ECONS 424 STRATEGY AND GAME THEORY MIDTERM EXAM #2 DUE DATE: MONDAY, APRIL 9 TH 2018, IN CLASS Instructions: This exam has 6 exercises, plus a bonus exercise at the end. Write your answers to each exercise

### Managerial Economics

This paper has 10 pages (including the coversheet) THE UNIVERSITY OF MELBOURNE MELBOURNE BUSINESS SCHOOL Managerial Economics A/Prof. Joshua Gans and Dr Vivek Chaudhri Final Exam: Semester 1, 1998 Reading